Bourbonnais v. Ameriprise Fin. Servs. Inc.: Securities Fraud Investigation

In Bourbonnais v. Ameriprise Financial Services., Inc., No. 14-C-966, 2015 BL 47543 (E.D. Wis. Feb. 24, 2015), Thomas and Donna Tesch and William Bourbonnais (“Plaintiffs”) filed a class action suit against financial advisor, Paul Renard, SII Investments, Inc., and Ameriprise Financial Services, Inc. (together, the “Defendants”), alleging securities fraud. Plaintiffs asserted that the Defendants violated Section10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.  Plaintiffs also contended the Defendants violated the Wisconsin Uniform Securities Law, the Wisconsin Organized Crime Control Act, and acted with negligence.

According to the complaint, Renard was a registered broker with Ameriprise Financial Services and SII Investments from 1998 until 2013. He allegedly sold Plaintiffs non-traditional exchange-traded funds (“ETFs”).  Specifically, the complaint asserted that Renard sold multiple leveraged and inverse ETFs in approximately $100,000 increments and that that the Plaintiffs held them for anywhere between two and four years.  Ultimately, the Plaintiffs lost most of their investments in the instruments.

Non-traditional ETFs “are leveraged or inverse ETFs that seek to deliver multiples of the daily performance of the index or benchmark they track.” According to Plaintiffs, these securities generally have an investment objective period of a single day and allegedly are not suitable for retail investors “who plan to hold them for longer than one trading session, particularly in volatile markets.”   

The complaint alleged Renard had no legal justification for recommending the ETFs and that he violated Ameriprise policy by soliciting the investment. Moreover, Renard allegedly testified that Ameriprise employees directed him to solicit and then report the transaction as unsolicited. Plaintiffs also asserted that SII Investments failed to oversee Renard and knew that his customers were losing money. The plaintiff class termed themselves “ordinary people” who sought low risk accounts and that the brokers involved selected accounts that were not suitable for retail investors. Accordingly, the complaint alleged that SII failed to establish a system to properly monitor and advise the plaintiffs of the suitability of their accounts.

The Defendants moved to dismiss for failure to state a claim, to strike the class, and to arbitrate. They asserted that the plaintiffs failed to plead their claims with the particularity required for fraud charges under Rule 9(b) and the Private Securities Litigation Reform Act of 1995.

Federal rule of Civil Procedure 12(b)(6) requires the court to accept well-pleaded factual allegations.  Moreover, Rule (8)(a) requires the complaint to include a short statement showing entitlement to relief and Rule 9(b) requires claims of fraud to be pled with particularity. Under the Private Securities Litigation Reform Act, the complaint must specify each alleged misleading statement and provide an explanation of how it is misleading.  Furthermore it requires the plaintiff to “state with particularity” facts that provide strong support that the defendant purposely committed fraud.

The court granted the Defendant’s motion to dismiss with leave for Plaintiffs to file an amended complaint. The court found Plaintiffs failed to state sufficiently particularized allegations.  See Id. (“In truth, Plaintiffs do not really dispute the defendants' assertion that the complaint fails to identify individual omissions or misrepresentations with particularity.”). 

The court, however, indicated the belief that Plaintiff would be able to meet this burden with respect to at least some of the Defendants.  Id. (“It appears clear that Plaintiffs will be able to state a § 10(b) claim with the required particularity directly against at least Renard and perhaps under principles of respondeat superior or apparent authority against Ameriprise and SII.”).   

The primary materials for this case can be found on the DU Corporate Governance Site

Patrick Rohl